CPA REVIEW SCHOOL OF THE PHILIPPINES Manila THEORY OF ACCOUNTS - PREWEEK LECTURE VALIX SIY VALIX FERRER 1. Under PAS 26, the report of a defined contribution plan shall contain L.A statement of net assets available for benefits Il. A desoription of the funding policy. Tonly Monly Either I or I Both I and II aeoe 2, The report of a defined benefit plan shall contain I. A statement showing the net assets available for benefits, the present value of promised benefits and the resulting excess or deficit. TL A statement of net assets available for benefits including a note disclosing the present value of promised benefits. a, Lonly b, Ionly ¢. Either I or I 4. Both I and II 3. Which of the following may be disclosed in the financial report of a defined benefit plan but would not be shown in the financial report of a defined contribution plan? a. Government bonds held 'b, Actuarial present value of promised retirement benefits — daft befits ¢. Employee contributions 4. Employer contributions 4, ‘Investments held by benefit plans should be measured in the statement of net assets at a. Net realizable value b. Fair value ¢. Original cost less impairments 4. Value in use 5) Ina rare circumstance, when a retirement benefit plan has attributes of both defined contribution and defined benefit plan, it is deemed a, Defined benefit plan b. Defined contribution plan ¢. Neither a defined contribution plan nor a defined benefit plan 4. Both defined contribution plan and defined benefit plan. 6. A manufacturing group has just acquired a controlling interest in a football club that is listed on fa stock exchange. The management of the manufacturing group wishes to exclude the football club from the consolidated financial statements on the ground that its activities are dissimilar. Under PAS 27, how should the football club be accounted for? a. The entity should be consolidated as there is no exemption from consolidation on the ground of dissimilar activities. b, The entity should not be consolidated using the acquisition method but should be consolidated using equity accounting. . The entity should not be consolidated and should appear as an investment in the group accounts, . The entity should not be consolidated and details should be disclosed in the financial statements, 5502Page 2 7. Am entity controls an overseas entity. Because of exchange controls, itis difficult to transfer funds out of the country to the parent entity. The parent owns 100% of the voting power of the overseas entity. How should the overseas entity be accounted for? a. It should be excluded from consolidation and the equity method should be used. D b. Itshould be excluded from consolidation and stated at cost. ¢.. It should be excluded from consolidation and accounted for as nonmarketable investment. d._Itis not permitted to be excluded from consolidation because control is not lost. 8. An entity acquired an investment in subsidiary with the view to dispose of this investment within six months, The investment has been classified as held for sale. The subsidiary has never been consolidated. How should the investment in subsidiary be treated in the financial ‘statements? Gz a. Acquisition accounting should be used. b. Equity accounting should be used. c. The subsidiary should not be consolidated by PFRS 5 should be used. 4. The subsidiary should remain off statement of financial position. )it is generally presumed that an entity is a variable interest entity subject to consolidation if its *, equity is a, Less than 50% of total assets b. Less than 25% of total assets | c. Less than 10% of total assets | Less than 10% of total liabilities | Fey (to)a, B and C established a special-purpose entity (SPE) to perform leasing activities for the three corporations. If at the time of formation the SPE is determined to be @ variable interest entity ® subject to consolidation, which of the corporations should consolidate the SPE? a. ‘The corporation with the largest interest in the entity. b. The corporation that will absorb a majority of the expected losses if they occur. c. The corporation that has the most voting equity interest 4d, Each corporation should consolidate one-third of the SPE. The device by which a corporation transfers a part of its assets to a new entity in exchange for shares of the new entity, after which the corporation distributes such shares to its shareholders ‘without any surrender of any shares is known as A a. Spinoff b. Split up ©. Split off 4. Split on 12. Under PAS 28, what accounting method should be used for an inves it is operating under severe long-term restrictions, for example, Wi! entity has temporary control over the associate? B a. PAS 39 should be applied. b. The equity method should be applied if significant influence can be exerted, c. The associate should be shown at cost. 4, Consolidation method should be used. stment in. an associate where re the government of the 13, What is “significant influence”? Gj a, The holding of a significant proportion of the ordinary shares of another entity. b. ‘The contractually agreed sharing of contro! over an entity. c. The powe jcipate inthe financial and operating policy decisions of an entity d. The mutual s! inthe risks and benefits of a combined entity 14. Under the-équity method of accounting for investments, an investor recognizes its share of the D earnings ithe périod in which the a, Investor sells the investments. b. Investee declares a dividend. ¢, Investee pays a dividend. 4. Eamings are reported by the investee in its financial statements. 550215, 16. 18. 19, Page 3 ‘An entity has several subsidiaries that operate in a hyperinflationary economy which uses the zloty as its local eurrency. Management wishes to show the financial statements 1 US dollars. Many of the operations are within countries that are not hyperinflationary and these subsidiaries aac curo as their functional currency, Under PAS 29, what currency should the entity use to present its consolidated financial statements? a. The US dollar b. The zloty ©. The euro d. The entity may use any currency pan aeconahy ‘Am entity is reporting in a hyperinflationary economy, The monetary assets exceed monetary liabilities. Which of the following statements is true? 1. There will be a Joss on the net monetary position. Il. Any gain or loss in the net monetary position is recognized in profit or loss. Tonly Honly Both I and If Neither I nor II Bese Under PAS 32, which of the following instruments would/not be classified as a financial liability? A preference share that will be redeemed by the issuer for cash on a future date. . A contract for the delivery of as many of the entity's ordinary shares as are equal in value to a fixed amount on a future date ©. A written call option that gives the holder the right to purchase a fixed number of the entity’s ordinary’ shares in return for a fixed price 4. An issued perpetual debt instrument What are the conditions for offsetting of financial assets and financial liabilities? a. A legal right of set off b. A legal right of set off and an intention to settle net or simultaneously. c. The existence of a clearing mechanism or other market mechanism for net settlement and an expectation of net settlement. 4. Annetting agreement and an expectation of net settlement. For what items is fair value required to be disclosed? a. All financial instruments b. All financial instruments, except unquoted equity instruments and derivatives linked thereto c. All financial assets and financial liabilities, except for investments in unquoted instruments and derivatives linked thereto. 4. All financial assets, except for investments in unquoted instruments and derivatives linked thereto. Transaction costs that ae directly atributable to the issuance of new shares should be Expensed immediately = Auurt- fom SP gvom reno. Ware . Charged to retained earings b- dunt Jim (UE w{ Ais cos c, Deducted from equity aes 4. Deducted from equity, net of any related income tax benefit | Costs of public offering of shares or costs that relate to the “stock market listing of shares” ‘should be a. Expensed immediately b. Considered as component of other comprehensive income c. Deducted from equity d. Deducted from equity, net of any related income tax benefit. 2o-2S 'y Pic - Cost of Public 5502 offering Sryred.D es A K @ Page 4 ‘Transaction costs. directly attributable to the issuance of new shares include all of the following, exeept 1a, Documentary stamp tax and other percentage tax b. Underwriting fee c. SEC registration fee for new shares d. Stock listing fee \Costs of public offering or listing of shares include a. Road show presentation b. Public relations consultant fee c. Newspaper publication fee directly relating to the share issue d. Both and b £2) What is the treatment of “joint costs” that relate jointly to the concurrent listing ead issuance of 26. OTF 28. new shares, and listing of old existing shares? a. The joint costs should be expensed immediately. . The joint costs should be deducted from equity, net of tax benefit ¢. The joint costs should be deducted from equity, plus tax benefit 4. ‘The joint costs should be allocated between the newly issued and listed shares and the newly listed old existing shares prorata based on the number of shares outstanding. Jojnt Costs related to the concurrent listing and issuance of new shares aiid listing of old existing sharssii¢lude al! of the following, except a. Faimess opinion and valuation report Props denn & Ping . Tax opinion and opinion of counsel c. Audit and other professional advice relating to prospectus ¢ d. Documentary stamp tax ign and printing Under PAS 33, contingent ordinary shares are treated ss outstanding end included in the computation of both basic and diluted earings per share if tie conditions are satisfied. Which of the following statements is true? 1. Contingent ordinary shares are included in the calculation of hasic exrnings per share from the date the condition is satisfied luted earnings per share . if later. Il. Contingent ordinary shares are included in the calc from the beginning of the period or from the date of contingen agreer Lonly only Both I and IS Neither I nor II eese Which of the following statements is true conceming EPS calculation? 1. Potential ordinary shares issued by a subsidiary should be included in diluted EPS as they could potentially have an impact on the net profit for the period ans the mummber of shares to be included in the calculation. Tl. Anentity should disclose diluted EPS only if it differs from basic EPS by @ material amount. a. Tonly b. only ¢. Both [and II 4, Neither I nor I ‘The weighted average number of shares outstanding during the period for ail periods shall be adjusted for a. Any change in the number of ordinary shares without chazize b. Any prior period error c. Any issue of shares for cash 4d. Any convertible instruments settled in cash. urces 5502Page 5 29. When applying the treasury share method for diluted earnings per share, the market price of the ordinary shares used for the purchase is the a. Price at the end of the year B 'b, Average market price c. Price at the beginning of the year ds, None of these 30, Antidilutive securities : ‘a. Should be included in the computation of diluted earings per share but not basic earnings yer share. b. Are those whose inclusion in eamings per share computations would cause basic earnings D per share to exceed diluted earnings per share. . Include share options and warrants whose exercise price is less than the average market price of ordinary shares. d. Should be ignored in all earnings per share calculations 31. Under PAS 34, which of the following statements is true? a. An interim financial reporf may consist of a complete set of financial statements. 0 b. An interim financial report may consist of a condensed set of financial statements. ¢. A complete set of financial statements is required at interim reporting date. 4. Bothaandb 32, All ofthe following statements in relation to interim reporting are true, except a. Itis necessary to count inventories in full atthe end of each interim period b, The net realizable value of inventory is determined by reference to the selling prices at A interim date \ ©. An entity is required to expense interim amount like advertising expenditure that could benefit later interim period. 4, No accruals or deferrals in anticipation of ‘ture events during the year should be reported. 33, Which of the following statements is not a characteristic of the integral view of presenting {interim financial statements? a. Itis the generally acceptable view. B . Each interim period is recognized as a separate accounting period, regardless of the length of time involved. ¢. Each interim period is a part of the annual period, d. The revenue and expenses for the annual period are allocated among interim periods on some reasonable basis. 34, The accounting profession indicates that a. All entities that issue an annual report should issue interim financial reports. b. The integral view is the most appropriate approach to take in preparing interim financial reports. D ¢. The three basic financial statements should be presented each time an interim period is reported upon. 4. The same accounting principles used forthe annual report be employed for interim repors. tmp Loss 35. PAS 4%6 applies to which ofthe following assets? a. Inventories var b. Financial assets bw of ty ©. Assets held for sale eft 4: Property plant, and equipment 36. When deciding on the discount rate to be used in calculating value in use, which factor should ‘not be taken into account? ax The time value of money iC . Risk specific to the asset for which future cash flow estimates have not been adjusted. c. Risk specific to the asset for which future cash flow estimates have been adjusted. d. Pretax rate 5502pr cs BD D D 37. 38. Page 6 ‘When allocating an impairment loss, such a loss should reduce the carrying amount of which asset first? 4, a. Property, plant, and equipment gon 50 b. Intangible assets ot c. Goodwill P ool ef d. Current assets All of the following statements are true about the recoverable amount used in the impairment test of a long-lived asset, except a. An asset’s recoverable amount is the lower of its value in use and its fair value less cost to sell. b, An asset’s recoverable amount is the higher ofits fair valuc less cost to sell and its value in use, ¢. If the recoverable amount is lower than the carrying amount, an impairment loss wi recorded. 4, If.an asset’s recoverable amount is higher than the carrying amount, no impairment loss will be reported on the period’s income statement be 39, Under PAS 37, a “provision” is recognized 40. 41. 42. 43. a. When there isd legal obligation arising from a past obligating event, the probability of the outflow of tesourees-is-more than remote but Jess than probable, and a reliable estimate can bbe made of the amount of the obligation. b. When there is a cOnstructiyé obligation as a result of a past obligating event, the outflow of resources is probablérati a reliable estimate can be made of the emount of the obligation. ¢. When there is a/possible obligation arising from past event, the outflow of resources is probable and an approximate amount can be set aside for the obligation. 4. When management decides that it is essential that a provision be made. ‘A competitor has sued an entity for unauthorized use of its patented vechnology: The amount that the entity may be required to pay to the competitor if the competitor succeeds in the lawsuit is determinable with reliability, and according to the legal counse! it js tes than probable but more than remote that an outflow of the resources would be needed to mect the obligation. The entity that was sued should at year-end a, Recognize a provision for this possible obligation. b. Make a disclosure of the possible obligation in the notes to financial statements. ¢. Make no provision or disclosure and wait until the lawsuit is finally decided and then expense the amount paid on settlement. 4, Set aside as an appropriation an amount based on the best f the possible liability, ‘A provision should be recognized for which of the following? a. Future operating losses . Obligations under insurance contracts ¢. Reductions in fair value of financial instruments d. Obligations for plant decommissioning costs Provisions shall be recognized for all of the following) except a. Cleaning up cbsts of contaminated land when an oil @itity has a published policy that it will undertake to clean up all contamination. b. Restructuring costs after a binding sale agreement has been signed c. Rectification costs relating to defective products already sold 4. Future refurbishment costs due to introduction of a new compu er system Under PAS 38, which characteristic is not possessed by i a, Physical existence b. Identifiable and nonmonetary c. Result in future benefits 4d. Expensed over current and future years 5502Gis Page 7 44, Entities should evaluate indefinite life intangible assets at least annually for a, Recoverability b. Amortization ¢, Impairment 4. Estimated useful life 4S \The reason goodwill is sometimes referred to as a master valuation account is because a,” Itrepresents the purchase price of a business that is about to be sold. {tis the difference between the fair value of the net identifiable assets as compared with the purchase price of the acquired business. ¢. The value of a business is computed without consideration of goodwill and then goodwill is added to arrive at a master valuation. 4, It is the only account in the financial statements that is based on value and all other accounts are recorded at an amount other than their value. 46, How should research and development costs be-accounted.for? 4, Must be capitalized when incurred and then amortized over estimated useful life. . Must be expensed in the period incurred. ¢. May be either capitalized or expensed when incurred, depending upon the materiality of the amounts involved. 4. Must be expensed in the period incurred unless it can be clearly demonstrated that the expenditure will have alternative future use or unless contractually reimbursable, 47, Which of the following costs would net be capitalized? a. Acquisition cost of equipment to be used on current and future research projects. b. Engineering costs incurred to advance the project to the full production stage. c. Cost incurred to file for patent. 4. Cost of testing prototype before economic feasibility has been demonstrated. 48, Which of the following costs should be exéluded from research and development expense? a. Modification of the design of a product b. Acquisition of R and D equipment for use on a current project only c. Cost of marketing research for a new product 4. Engineering activity required to advance the design of a product to the manufacturing stage 49, Under PAS 39, what is the principle for recognition of a finaneial.asset? ‘a. A financial asset is recognized when it is probable that future economic benefits will flow to the entity and the cost or value of the instrument can be measured reliably. b. A financial asset is recognized when the entity obtains control of the instrument and has the ability to dispose of the financial asset independent of the actions of others. ¢. A financial asset is recognized when the entity obtains the risks and rewards of ownership of the financial asset and has the ability to dispose the financial asset. 4. A financial asset is recognized when the entity becomes a party to the contractual provisions of the instrument 50, At what amount is a financial asset or financial liability measured on initial recognition? a. The consideration paid or received for the financial asset or financial liability. b. Acquisition cost c, Fair value 4, Zero 51. In which of the following circumstances is derecognition of a financial asset not appropriate? _ a. The contractual rights to the cash flows of the financial assets have expired. b. The financial asset has been transferred and substantially all the risks and rewards of ownership of the transferred asset have also been transferred. c. The financial asset has been transferred and the entity has retained substantially all the risks and rewards of ownership of the transferred asset. d. The financial asset has been transferred and the entity has neither retained nor transferred substantially all the risks and rewards of ownership of the transferred asset but the entity has lost control of the transferred asset. 5502x Page 8 / ‘52, Which of the following transfers of financial asset would qualify for derecognition? ; 7 a. Asale ofa financial asset where the entity retains ay option 2% buy the asset back at its \fcurrent fair value on the repurchase date. ~ A ]*». A sale of a financial asset where the entity agrees to repurchase the asset in one year for a \ fixed price plus interest. c. A sale of a portfolio of short-term accounts receivable where the entity guarantees to compensate the buyer for any losses in the portfolio. 4. A loan of a security to another entity. 53. All of the following are characteristics of a derivatives except) a. It is acquired or incurred by the entity for the purpose of generating a profit from short-term fluctuations in market factors, A b. Its value changes in response to the change in a specified underlying. . Itrequires no initial investment or an initisl net investment. , It is settled at a future date. 54/ Which embedded derivative should not be accounted for separately? ‘a, Aninvestment in.a convertible bOnd that is classified as available for sale. b. An investment in a bond whose interest payments are linked to the price of gold and the G bond is classified as available for sale. c. An investment in a bond whose interest payments are linked to the price of silver and the bond is classified as at fair value through profit or loss. 4. A call option in an investment in an equity instrument that allows the issuer to repurchase the instrument, ‘ 3\ This is defined as a “purchase or sale of a financial asset under a contract whose terms require Jéetivery of the asset within the time frame established genecelly by regulation or convention in the market place concemed” a. Regular way contract 5 ns b. Forward contract dahil mahirap king Kami c. Fim commitment ah mahioap uns Ramtape 4. Forecast transaction por ot) 56. What is the meaning of “trade date accounting” in relation to regu financial asset? vay purchase or sale of 1. The recognition of the asset to be received and the liability to ox the date on which the entity commits itself to purchase or sell an asset. IL. The recognition of the asset on the date received by the entity or de A on the date delivered by an entity. a, Lonly b. Honly . Either I or I . Neither Inor It © pa ‘ognition of the asset 57. Under PAS 40, investment property is defined es a, Property held for sale in the ordinary course of business G . Property held for use in the production and supply of goods or services and property held for administrative purposes ©. Property held to earn rentals or for capital appreciation 4. Identifiable nonmonetary asset without physical substance. 58. Which of the following additional disclosures must be made whe: A model for an investment property? catity chooses the cost a, The fair value of the property b. The present value of the property ©. The value in use of the property 4. The net realizable value of the property 5502ae & 59. 60. 61y 62, 63. 64. 65. 66, Page 9 Which of the following disclosures should be made when the fair value model has been adopted for investment property? a. Depreciation method used b. The amount of impairment loss recognized c. Useful life of property 4. Net gain or loss from fair value adjustments Which of the following is not dealt with by PAS 41? a. The accounting for biological assets. A '. The initial measurement of agricultural produce harvested from the entity's biological assets, c. The processing of agricultural produce after harvesting. 4. The accounting treatment of government grant received in respect of biological assets. Which of the following is unlikely'to be used in fair value measurement of biological asset? a, Quoted market price ~ b. The most recent market transaction price ©. The present value of the expected net cash flows from the asset 4. Extemal independent valuation Which of the following information shall be disclosed jn relation to biological assets and agricultural produce? — a. Separate disclosure of the gain or loss relating to biological assets and agricultural produce. b. The aggregate gain or loss arising on the initial recognition of biological assets and agricultural produce and from the change in fair value less cost to sell of biological assets. c. The total gain or loss from biological assets, agricultural produce, and from changes in fair value less cost to sell of biological assets. 4. There is no requirement to disclose separately any gains or losses. ‘An unconditional government grant related to a biological asset that has been measured at fair value less cost to sell should be recognized as Income when the grant becomes receivable. A deferred credit when the grant becomes receivable. Income when the grant application has been submitted. ‘A deferred credit when the grant has been approved. pege If a government grant related to a biological asset is conditional on certain events, the grant should be recognized as a. Income when the conditions attaching to the grant are met. b. Income when the grant has been approved. c. A deferred credit when the conditions attached to the government grant are met. 4, A deferred credit when the grant is approved. This is defined in PFRS 1 as the “first annual financial statements in which an entity adopts Philippine Financial Reporting Standards (PFRS) by an explicit and unreserved statement of compliance with PFS”. a, PERS financial statements , First PFRS financial statements c. Opening PFRS statement of financial position d._ First audited PFRS financial statements An entity that presents its first PERS financial statements is known as An originating entity A provisional presenter A first-time adopter An initial reporter eege 550267. G 68. c 69. G, eee 70. a ie 72. Inabcounting for share appreciation rights, compensation expense i € 3, | Page 10 An entity's statement of financial position, published or unpublished, at the date of transition to PRS is best described as the a. Provisional PFRS statement of financial position \ b. Closing GAAP statement of financial position c. Opening PERS statement of financial position d. Originating PFRS statement of financial position Which of the following statements best describes the “date of transition to PFRS”? a. The beginning of the latest period presented in the entity’s most recent annual financial statements under previous‘ GAAP b.. The end of the latest period presented in the entity's most recent annual financial statements under previous GAAP c. The beginning-of the earliest period for which an entity presents full comparative information under PFRS in its first PFRS financial staiements 4. The end of the earliest period for which an entity presents full comparative information under PFRS in its first PFRS financial statements . Which of the following transactions involving the issuance of shares does not conte within the definition of a “share-based” payment under PFRS 2? a, Employee share purchase plans b, Employee share option plans c. Share-based payment relating to an acquisition of a subsidiary 4, Share appreciation rights |. Which of the following is true regarding the requirements of PFRS 2? ay Private entities are exempt. b. “Small” entities are exempt. ¢. Subsidiaries using their parent entity's shares as consideration for goods and services are exernpt. 4. There are no exemptions from PFRS 2. _Ohice the total compensation is measured at the date of grant ‘a. It can be changed in future periods related to a change in market concitions, b. Itcan be changed to.xeflect the rise or fall in the market price of the eniity’s ordinary shares. ©. Anentity is permitted to adjust the number of share options =xpected to the actual number of instruments vested. , 4. All of the choices are correct. rally 1 price exists at the date of 4, Not recognized because no excess of market price over the opt grant: Recognized in the period of the grant. c. Allocated over the service period of the employees. 4d, Recognized in the period of exercise. Under PERS 3, which of the following would not contribute to the creation of negative goodwill? a. Errors in measuring the fair value of the acquiree’s net identifiable assets or the cost of the business combination. b, A bargain purchase. ¢. A requirement to meesure net assets acquired at a value other than fair value. 4d. Making acquisitions at the top of a “bull” market for shares. 5502Page 11 74, During the current yea, an entity acquires another entity in a transaction propetly accounted for ae vinezs sequistion, At te time of the acquisition, some of the information for valuing fesets was incomplete. How should the acquirer account for the incomplete information in preparing its financial statements immediately after the acquisition? a. Do not record the uncertain items until complete information is available. b. Record a contra account to the investment ‘account for the amount involved. ¢, Record the uncertain items at the carrying amount of the acquiree. d. Record the uncertain items at a provisional amount measured at the date of acquisition. 75. When does the measurement period end for a business combination in which there was incomplete accounting information on the date of acquisition? a. When the acquirer receives the information or one yeaihfrom the acquisition date, whichever occurs earlier. b. On the final date when all contingencies are resolved. c. Thirty days from the date of acquisition. > At the end of the reporting period in the year of acquisition. 76. PERS 4 defines a reinsurance contract as a contract issued by one insurer, the reinsurer, to @ompensate another insurer for losses on one or more contracts issued by the cedant. What is the meaning of “cedant” in a reinsurance contract? a. Policyholder under a reinsurance contract b. Policyholder under an insurance contract ¢. Insurer under an insurance contract dd. Reinsurer under a reinsurance contract 77: This is defined as “the payments to which a particular policyholder has an unconditional right that is not subject to the contractual discretion of the insurer”, a, Gilstanteed benefits b. Unconditional benefits ©. Proceeds of policy d, Executory benefits 78, Itis the insurer’s net contractual right under an insurance contract, b. c. Reinsurance asset __.d. Reinsurance liability 49. Which of the following accounting practices has been outlawed in relation to insurance contracts? a. Shadow accounting ’, Catastrophe provisions c. A test for the adequacy of recognized insurance liabilities 4. An impairment test for reinsurance assets 80. Which of the following types of contracts would probably not be covered by PERS 4? a, Motor insurance b. Life insurance , Medical insurance d. Pension plan 81. Under PFRS 5, how should the assets and liabilities of a disposal group classified as held for sale be shown in the statement of financial position? ‘a. The assets and liabilities should be offset and presented as a single amount b. The assets of the disposal group should be shown separately from other assets and the liabilities of the disposal group should be shown separately from other liabilities. c. The assets and liabilities should be presented as a single amount and as a deduction from equity. ‘4. There should be no separate disclosure of assets and liabilities that form part of a disposal group. 5502| Page 12 82, How should the income from discontinued operation be presented in the income statement? ‘a. The entity should disclose a single amount on the face of the income statement with analysis in the notes or a section of the income’statement separate from continuing operations. revenue and expense, | ¢. Discontinued operation should be shown as a movement on retained earnings. 4. Discontinued operation should be shown as a line itern after gross profit with the taxation being shown as part of income tax expense. | K b. The amount from discontiriued operations should be broken down over each category of AC//’ s3.Awhich of the following criteria does not have to be met in order for an operation to be classified Ps discontinued? a. The operation should represent a separate major line of business or geographical area. D b. The operation is part of a single plan to dispose of a separate major line of business or geographical area. ¢. The operation isa subsidiary acquired exclusively with a-view to resale> _d.. The operation must be sold within three months of the year-end. 84, Does PFRS 6 require an entity to recognize exploration and evaluation expenditure as asset? \_* a. Yes, but only to the extent such expenditure is recoverable in future periods. b. Yes, but only to the extent the technical feasibility and commercial viability of extracting the CG associated mineral resource have been demonstrated > e Yes, but only to the extent required by the entity’s accounting policy| for recognizing exploration and evaluation asset. 4. No, such expenditure is always expensed as incurred. 85. An entity is required to consider which of the following in developing accounting policies for exploration and evaluation activities? a. The requirements and guidance in Standards and Interpretations dealing with similar and related issues. 2D b. The definitions, recognition criteria, and measurement concepts for assets, liabilities, income, and expenses in the Conceptual Framework. ¢. Recent pronouncements of standard-setting bodies, accounting literature and accepted industry practices. 4, Whether the accounting policy results in information that is relevant and reliable. 86. Under PFRS 7, the risks arising srom-financial-instruments that are required to be disclosed (include all of the following, except R a. Qualitative and quantitative information about credit risk. . Qualitative and quantitative information about liquidity risk. c. Qualitative and quantitative information about market risk 4. Qualitative and quantitative information about operational risk. 87, Liquidity risk is defined as a. The risk that an entity will encounter difficulty in meeting obligations associated with financial liabilities. hs b. The risk that an entity will encounter difficulty in disposing a finencial asset due to lack of, market liquidity. cc. The risk that an entity will encounter in meeting cash flow needs due to cash flow problems 4. The risk that an entity’s cash inflows will not ke sufficient to meet the entity’s cash outflows 88, Which of the following best describes eredit risk? ‘a, The risk that one party to a financiel instrument will cause a financial loss for the other party by failing to discharge an obligation. . b. The tisk that an entity will encounter difficulty in meeting obligations associated with financial liabilities ¢. The risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in market prices. .. The risk that an entity's credit facilities will be withdrawn due to cash flow sensitivities 5502C Page 13) 89. The components of market risk are a Credit risk and liquidity risk ’b. Currency risk and credit risk Interest rate risk and currency tisk 4. Liquidity risk and currency risk 90, Which of the following information is not required to be disclosed about the significance of financial instruments? a. Carrying amounts of categories of financial instruments b. Fair value of financial instruments ¢, Information about use of hedge accounting 4. Information about financial instruments, contracts and obligations under share-based payment transactions 91. Under PFRS 8, en operating segment is a reportable segment if ats operating profit is 10% or more of the combined operating profit of profitable segments. Its operating loss is 10% or more of the combined operating loss of segments that incurred an operating loss. c, The absolute amount of its operating profit or loss is 10% or more of the entity's combined operating profit or loss. : None of these seomre— LE event & Unusual items ’b. Interest revenue ©. Cost of goods sold d, Depreciation and amortization expense 4 1. pe of the following information about each operating segment must be reported, except 93. In presenting segment information, for which of the following items must a reconcilation be provided? a. Revenue b. Operating profit or loss c. Assets and liabilities 4. All of these 04, PERS requires that an entity should report all of the following, except a. Segment profit and loss and related information b. Segment assets and liabilities ¢, Major customers 4. Liquidity ratios 95, Which of the following statements js true About major customer disclosure? per L.A major customer is defined as one providing revenue which amounts to 10% or more of combined intemal andjextemal revenue of all operating segments. Tl. The identities of major customers must be disclosed. a. only in psn b. Tonly \--ietirel a tlk frewernr c. Both I and Il ke Sayre d. Neither I nor If i an ee toons norte 96. Under IFRIC 2, members” shares in cooperatives may give the holder the right to request redemption for cash or other financial asset. Such members’ shares shall be accounted for as Equity Liability Either as equity or liability Partly equity and partly liability aesP 5502GF Page 14 97. Members’ shares in cooperatives shall be classified as equity 1. Ifthe entity has the unconditional right to refuse redemption of members” shares. Il. Ifthe redemption of members’ shares is unconditionally prohibited by law. Lonly only Either I or 1 ‘Neither I nor II rr enit pace, 98. Fair value of an asset should be based upon a. The replacement cost of an asset. . The price that would be received to sell the asset at the measurement date, , The original cost of the asset plus an adjustment for obsolescence. 4. The price that would be paid to acquire the asset. pegs 99. Which of the following is an assumption used in fair value measurement? a, The asset must be in-use. b. The asset must be considered in-exchange. c. The most conservative estimate must be used. d. The asset is in its highest and best use. 100. Which of the following describes a principal market for establishing fair value of an asset? a. The market that has the greatest volume and level of activity for the asset. b. Any broker or dealer market that buys or sels the asset. ¢. The most observable market in which the price of the asset is minimized. 4. The market in which the amount received would be maximized. 101. Which of the following would meet the qualifications as market participants? a. A liquidation market in which sellers are compelled to sell. b. A subsidiary of the reporting unit interested in purchasing assets similar to those being valued. c. An independent entity that is knowledgeable about the asset. 4. A broker or dealer that wishes to establish new market for the asset. 102. Which of the following is not a valuation technique used in fair value estimates? Income approach Residual value approach Market approach Cost approach aeoe 103, Valuation techniques for fair value that include the Black-Scholes formula, a binomial model, or discounted cash flows are examples of which valuation technique? 1, Income approach b. Market approach c. Cost approach 4. Residual value approach 1 iz 4. The market approach valuation technique for measuring fair value requires which of the following? a, Present value of future cash flows. b. Prices and other relevant information of transactions from identical or comparable assets. c. The price to replace the service capacity of the asset. 4d. The weighted average of the present value of future cash flows. END 5502